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UAE to remain fastest growing economy in GCC in 2024 and 2025

Earlier this month, Opec+ agreed to extend most of its oil output cuts into next year to shore up the market

Published: Wed 19 Jun 2024, 3:32 PM

Updated: Wed 19 Jun 2024, 7:39 PM

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File Photo. Image used for illustrative purposes

File Photo. Image used for illustrative purposes

The UAE will maintain its position as the fastest-growing economy in the Gulf Cooperation Council (GCC) region in 2024 and 2025 as it will be able to raise oil output sooner than other oil-producing countries in the Opec+ group, economists said.

James Swanston, economist for the Mena region at Capital Economics, projected that the UAE’s GDP will grow 3.3 per cent this year and 5.5 per cent in 2025, surpassing its Gulf peers as well as wider regional countries.

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“The UAE will be able to raise oil output sooner than other Opec+ members. Its balance sheet is very strong and should not be challenged by lower oil prices, allowing fiscal policy to stay loose. As a result, the UAE will keep its position as the fastest-growing economy in the Gulf both this year and next,” Swanston said in a note.

World Bank recently forecasted 3.9 per cent growth for 2024 and 4.1 per cent for 2025.

GDP growth of Gulf countries (in per cent)
Country20242025
UAE3.35.5
Oman3.02.5
Bahrain2.53.3
Qatar2.02.3
Saudi Arabia1.34.8
Kuwait-1.52.8

Source: Capital Economics, KT Research

Earlier this month, Opec+ agreed to extend most of its oil output cuts into next year to shore up the market amid tepid demand growth and rising US production. The oil-producing group’s members were producing 5.86 million barrels a day.

In June, the group of oil-producing nations agreed to allow the UAE to increase its production target by 300,000 barrels per day for next year.

“Following this month’s OPEC+ decision, the UAE is set to start unwinding its voluntary oil output cuts from October and, from January, can take advantage of its newly raised base quota. The upshot is that oil output will be 6 per cent stronger in 2025 than we previously anticipated. Meanwhile, we expect Brent crude prices to average $83 per barrel this year and $75 per barrel in 2025, which is well above fiscal and current account break-even prices. With large twin surpluses, the UAE government can continue with a loose fiscal stance,” he added.

Ole Hansen, head of commodities strategy at Saxo Bank, said recent oil market reports from Opec and the International Energy Agency (IEA) highlighted a widening gap in their respective outlooks for 2024 and 2025 demand growth.

While Opec has held onto an expected increase of around 2.2 million barrels per day this year, the IEA has continued to downgrade its forecast, currently below 1 million barrels per day amid continued slowdowns in key markets, most notably OECD, where exceptional gas oil weakness reflects challenging industrial conditions.

The agency expects the subdued outlook to be carried forward into 2025 with a modest increase of 1 million barrels a day, reflecting lacklustre economic growth, an expanding electric vehicle fleet, and vehicle efficiency gains.

GCC growth

He said growth in the Gulf economies is likely to pick up in the coming quarters, particularly as oil output starts to rise from October.

“The recovery in Gulf GDP growth will be driven by higher oil output. But with Opec+ deciding to keep output low until October, this boost to GDP will take longer to arrive than we had previously pencilled in. From 2026, we expect the Gulf countries to raise oil output more quickly,” said Capital Economics’ regional economist.

He added that non-oil sectors should continue to grow relatively strongly.

“A monetary loosening cycle should begin soon as the Gulf follows the US Federal Reserve, which we expect to start cutting rates from September. Meanwhile, we expect inflation in the Gulf to slow over the second half of this year, easing the squeeze on real incomes. This will support credit demand and consumer spending. That said, we expect non-oil growth across much of the Gulf to ease over the next few years,” he added.

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